Canadian Dollar Dragged Lower by Southern Neighbour, GBP/CAD at 3-year Best
- Written by: Sam Coventry
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UK-based Canadian Dollar buyers are looking at their best exchange rates in months after a U.S. inflation report shook currency markets.
The Pound to Canadian Dollar exchange rate (GBP/CAD) looks set to register its highest weekly close since August 2023.
This is after the Canadian Dollar was dragged lower by its southern neighbour on Thursday in a notable FX market reaction to a softer-than-forecast U.S. inflation report.
Softer inflation figures in the U.S. raised the odds of a rate cut at the Federal Reserve in September, which also boosted the odds of a second Bank of Canada rate cut later this month.
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Canada's economy is closely linked to the U.S. due to the strong trade and financial market ties bestowed by their geographical proximity.
Interest rate expectations remain a key driver of FX markets, and the two closely linked North American currencies are falling hand-in-hand as investors see an accelerated pace of rate cuts on both sides of the border.
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At the same time, markets are less confident that the Bank of England will cut interest rates on August 01 owing to this week's strong GDP report and a cautious assessment of services inflation by the Bank's Chief Economist Huw Pill.
Market-implied odds suggest September is crystalising as the preferred date for a first interest rate cut.
Divergent interest rate expectations favour the Pound over the Canadian Dollar, resulting in this week's move by GBP/CAD to 1.7614. This is a level last achieved in August 2021.